Sometimes I just like to babble about what’s on my mind. It helps me organize my thoughts and you guys keep asking me to do more of this. So here’s what I’m thinking….
The year is off to a great start for us. I’ve never gone into a new year this prepared. Sunday night January 4th I couldn’t even sleep I was so excited. It was like I was a little kid on Christmas Eve. I keep a spreadsheet with a list of if/then statements where if certain things happen I would enter long or short positions in asset classes of all kinds. So far this year I’ve been in soft commodities, energy stocks, foreign stock markets and base metal stocks. Some of these were longs and some were shorts. If you follow my stocktwits and twitter streams, you pretty much know what I’ve been looking at.
This whole interest rate thing is hilarious to me. I never knew the bond market could be so funny. Wall Street Economists keep telling us that rates are going higher and I have no idea what they’re looking at. Why on earth would they think that? Fed Fund Futures keep pricing in lower and lower probabilities of the first hike at the October meeting. Last I checked we were now down to just a 56% chance, down from over 80% last week. It’s hysterical to me.
I get asked every day when Crude Oil is going to bottom. I really have no idea. Bearish sentiment is stretched to levels rarely ever seen before. But that alone is not a reason to buy it. I’m looking for a momentum divergence to even think about putting on a position and so far we have not gotten it. We can put Unleaded Gas and Heating Oil in that same camp, with respect to both sentiment and a lack of momentum divergence. I don’t know when they will bottom. So we’re focused elsewhere. Euro is in that category too. Maybe they bottom simultaneously. We’ll see…
Natural Gas has exploded this week. To me, this one came out of no where. Earlier in my career I would have gotten upset with myself for missing this move. But now I realize that there is no reason to get mad. Looking back at the setup last week, there wasn’t any reason why I would have bought it. I have to stay true to my process and wait for only the perfect setups. If something makes a big move and it wasn’t my trade, there’s no reason to be mad. It wasn’t for me. And still isn’t, for that matter.
As far as US Equities go, I still don’t see any reason to put money to work up here in the major averages. One of my favorite positions so far this here has actually been a short SPY with a long REITs as a hedge. This has worked well and don’t see any reason why this still won’t work. I’m looking at 0.42 target on that spread (IYR/SPY). As long-term interest rates keep getting killed, there will continue to be a relative demand for higher yielding stocks. Fixed income guys aren’t getting their yield in the bond market. So they have to go to stocks. This is the reason I believe REITs and Utes doubled the returns of the S&P500 last year and will continue to do so in the first quarter.
I went to see Louis CK at Madison Square Garden last night. He was hilarious as always. So much fun. But I have a problem with the cavemen that run the arena. I get to the front of the line and show my tickets on my iPhone and these idiots make me go across the street to the Pennsylvania Hotel to print out the tickets. I couldn’t believe it. I thought this was 2015? I haven’t printed out tickets to a game or show in god knows how long. Anyway, I get to the hotel business center and there are 20 other angry people there printing out tickets wondering why we’re all doing this. And then if things couldn’t get any dumber, the guy’s gun to scan the bar code on the freshly printed tickets couldn’t even scan the bar code. He had to enter the numbers manually!!!! I couldn’t believe it. Still can’t. MSG get your act together. This is 2015 and we use phones not printers. And you wonder why the New York Knicks have the worst record in the National Basketball Association.
Some of the soft commodities are interesting. Coffee got off to a great start. We’re long Sugar futures currently and as long as we’re above the September lows, I love this one. OJ doesn’t look too bad either. My buddy Jonathan Krinsky at MKM Partners calls this the Breakfast Trade. Love that. I like Sugar the best of the 3.
Around the world I think we can see some nice mean reversions in countries that have been beat up. I like Malaysia down here. The risk/reward is definitely in favor of the bulls. I only like it above this week’s lows. Below that and things get messy.
Shorting Base Metals has worked out well for us so far this year. I was upset because we’ve had a small position. I didn’t want to chase it. This brings up an interesting point that has become the theme around the office this year. I think I’ve caught myself saying, “well that’s the downside of risk management” at least once or twice every day. It’s turned into a joke. But funny or not, it’s true. If you miss it you miss it. This isn’t venture capital where missing a good one could be a disaster. For us liquid market guys, there will be other opportunities.
Business wise things are going well. We’ve received great feedback from our subscribers about our weekly research reports. I love putting them together. This is really just my homework that I have to do anyway. I think of it as a professional athlete having to go to practice or to the gym. Even when it’s a Saturday morning or Tuesday late at night and I kind of don’t feel like putting in the work, I have to do it. No choice. I owe it to our paid members, I owe it to investors in our hedge fund and I owe it to myself. Hard work pays off. If I didn’t take the time to look at all of these charts, there is no way that I would find as many opportunities to profit around the world. I really want to have a great year, especially if the US Stock Market doesn’t do well. It will be nice to point to the success of an uncorrelated portfolio looking for absolute returns. I’m trying my best.
Solars are another interesting one. The trend here has been to the downside for almost a year. With downward sloping smoothing mechanisms on both daily and weekly timeframes, I think we break to the downside soon. Will that have anything to do with crude oil breaking to new lows? Possibly. But I want to be shorting these guys on a break of the lows from the 4th quarter. Solar stocks look terrible as a group.
Why are so many people lazy when it comes to math? I read things and am told things constantly that contradict 3rd grade math. I don’t understand. Interest Rates and US Dollars are positively correlated? What idiot told you that? When one is making new highs and the other is hitting new lows…..guess what? They’re not positively correlated buddy. The furthest thing from it in fact. I don’t get it.
I went to an art class the other day. It was so much fun. I’m not exactly the most artistic person. I’m not very good at drawing or painting. Although Howard Lindzon calls what I do “Chart Art”. But I had a blast at this class. It was at bar down in the Bowery. As it turns out my college buddy is dating this girl who is a lawyer during the day. But her heart and passion is really in art. So she decided to start this company called Art By Friends NYC. She teaches the class. So a few of us went to go support her. It was about 2 hours on Tuesday night. We drank wine, ate pretzels with a delicious mustard dip and my painting came out terrible. All good though. Some of the people in the class were incredibly talented. It was amazing how good some of these came out. But there was no judging. Everyone in the class was very supportive and friendly. Great time.
I don’t know when Copper is going to bottom out. It looks horrible. Structurally this is and has been a broken market that will take plenty of time to bottom out. We will get rallies, but I believe they will just be counter-trend in nature and the bottom will be a process. A long process. This tells me I need to keep looking at shorting base metals and base metal companies.
The metal I do like is Palladium. Relative to the others this is by far and away the best one. I want to buy this, but only on a breakout above 825. Below that and I don’t think there’s any reason to be involved long or short. The precious metals, gold, silver and platinum have done well so far this year and I think they have a little more upside maybe. But this isn’t something I want to fool around with. I think there are better setups elsewhere. But we’ll keep a close eye on them. Platinum to me has been the cleanest. I think we see at least 1350 on that one. Gold and Silver should benefit as well.
So that’s what’s on my mind.
What are you guys thinking these days?
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